On Tuesday, financial giants Charles Schwab (SCHW), Citadel Securities and Fidelity Investments (FNF), among others, announced the launch of cryptocurrency exchange EDX Markets .
A consortium of leading broker-dealers, global market makers and venture capital firms announces the launch of EDX Markets (EDXM), the first to enable safe and compliant trading of digital assets through a trusted intermediary, addressing underlying demand exchange. The new exchange will combine the proven technology offered by MEMX with the best practices of traditional financial markets and tighter spreads from greater liquidity to provide U.S. retail and institutional investors with safe, fast and efficient cryptocurrency trading .
EDXM will enable a highly liquid cryptocurrency ecosystem that pools liquidity from multiple market makers to reduce spreads and increase transparency. This commitment to price discovery and efficiency is expected to result in better prices for investors than existing cryptocurrency exchanges offer. EDXM operates as a completely separate entity, backed by financial industry leaders including Charles Schwab, Citadel Securities, Fidelity Digital Assets℠, Paradigm, Sequoia Capital and Virtu Financial. Over time, more market participants are expected to partner with EDXM.
EDXM has hired a number of senior leaders and will continue to expand its executive team in the coming months. Jamil Nazarali, formerly Head of Global Business Development at Citadel Securities, as CEO of EDXM; Tony Acuña-Rohter, former Technical Director of ErisX, has joined as CTO; David Forman, former Chief Legal Officer of Fidelity Brokerage Services and General Counsel of Fidelity Digital Assets℠, joins Act as general counsel. They will be joined by more employees from the cryptocurrency and traditional financial services sectors. Representatives of the founding member companies make up EDXM’s Board of Directors.
Backed by major trading and investment firms such as Schwab and Citadel Securities, EDX Markets will initially only offer a few cryptocurrencies such as Bitcoin .
A cryptocurrency exchange co-founded by Wall Street giants has ambitious plans to drastically reduce the fees for traders to buy and sell digital assets. It will initially focus only on a handful of cryptocurrencies, including Bitcoin (BTC), which its lawyers are convinced are not securities — thus avoiding the regulatory drama still unfolding in Washington.
EDXM Chief Executive Jamil Nazarali said in an interview on Tuesday that it is looking to push the cryptocurrency into low-cost U.S. stocks. He gave a theoretical example: An investor wanting to buy a $5,000 S&P 500 ETF, whose transaction costs—measured by the fees it takes for middlemen to complete the transaction, known as spreads—may be Only a few cents.
A Bitcoin transaction of a similar size could now cost $25, Nazarali said.
“This market structure costs retail investors a lot of money,” Nazarali said. “We want to bring a lot of the efficiencies [seen in equities] to the digital asset market.”
U.S. regulators are teasing out whether some crypto assets are securities and thus deserve more scrutiny. EDXM is sidestepping this fight. At launch, it will only offer “a handful of tokens that we don’t think are securities,” Nazarali said. This includes Bitcoin.
Nazarali declined to say which cryptocurrencies are available, saying that EDXM will open a pilot round of trading in November and officially launch in January.
Retail brokers in a consortium of EDXM supporters will bring order flow to the exchange, while Citadel Securities (Nazarali’s former employer), Virtu and other market makers will execute those orders, a role they are familiar with in the equities space. Competition among market makers will be partly responsible for lower transaction costs for clients, Nazarali said.
He also said to bring along some of the ancillary facilities that professional trading firms such as Citadel Securities and Virtu rely on in equities and other traditional markets.
The EDXM exchange will be located at the NY4 data center in Sycax, NJ, the east coast hub for nearly all transactions in the U.S. financial markets, except for the NYSE and Nasdaq, which have data elsewhere in NJ Center operation.
This opens up the possibility of colocation, and cryptocurrency exchanges have historically been based on cloud platforms, making it harder to pinpoint the physical location of exchanges.
“The result of colocation is lower latency and higher certainty, which allows market makers to quote tighter prices,” Nazarali said.
New Jersey’s location also stands out because major trading firms like Citadel Securities and Virtu use fast microwave communications networks to connect NY4 to another important colocation-providing exchange elsewhere in the United States.
Robinhood Markets and other major U.S. retail brokerages, not currently listed as supporters of EDXM, outsource cryptocurrency trading to third-party execution, including Jump Crypto, the digital asset of trading firms Citadel Securities and Virtu compete in traditional markets department.
Nazarali said he would love to draw that volume to EDX: “We want all of this to go to exchanges, and we think that’s a good thing for retail brokers. We want Jump Crypto to be a big market maker for EDX.”
As for why he jumped from traditional finance to cryptocurrencies — he was a senior at Citadel Securities — Nazarali said the energy of the ecosystem was an attraction.
The exchange is part of a growing trend of traditional financial firms becoming increasingly active in cryptocurrencies. The exchange also has other high-profile backers such as trading firm Virtu Financial and venture capital giants Sequoia Capital and Paradigm.
MEMX is an innovative, customer-focused marketplace operator established in 2019 to provide the technical infrastructure for EDXM. Using MEMX’s purpose-built scalable exchange architecture to scale a range of markets, EDXM will meet the needs of the world’s largest and most complex financial institutions as well as retail investors.
By utilizing a select digital escrow network to secure assets, transactions will be netted and settled on the blockchain, increasing speed and efficiency at a lower cost and eliminating the need for expensive bilateral settlements. Customer security and compliance are also core fundamental principles of EDXM. In particular, it will remove significant conflicts of interest affecting existing cryptocurrency exchanges by separating the responsibility for operating the exchange from the entities that trade on it.
